The ‘Comma’ Effect: NSWCA gives rundown on resolving ambiguous insurance clauses

The decision came about as a result of an accident which occurred in New South Wales whereby the weld attaching a hydraulic ram supporting a metal ramp to a stationary trailer failed, causing injury to the Plaintiff, Mr Zhang (‘Zhang’).

Date published

19/04/2017

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The NSW Court of Appeal (“NSWCA”) recently delivered a decision which identifies some key factors to consider when resolving ambiguities in insurance contracts. The decision, Zhang v ROC Services (NSW) Pty Ltd [2016] NSWCA 370, emphasises the proper use of punctuation and the importance of precision in drafting.

Background

The decision came about as a result of an accident which occurred in New South Wales whereby the weld attaching a hydraulic ram supporting a metal ramp to a stationary trailer failed, causing injury to the Plaintiff, Mr Zhang (‘Zhang’).

Zhang sued the driver of the truck pulling the trailer, the owner of the trailer, the fleet insurer of the truck driver’s employer, NTI and ROC Services (NSW) Pty Ltd (‘ROC’), who installed the hydraulics. At first instance, Zhang succeeded against the driver of the truck, the owner of the trailer and NTI, but failed against ROC.

NTI sought leave to appeal the decision against it based upon an exclusion clause contained within its Fleet Motor Policy relating to defects, which excluded NTI’s liability to pay:

“For any liability for death or bodily injury arising out of or in any way connected with a defect in Your Motor Vehicle or in a Motor Vehicle, but in Queensland only if it causes loss of control of the vehicle whilst it is being driven.”

The ambiguity concerned the simple placement of a comma. It was not clear whether the words “whilst it is being driven” applied to all proceeding words or just to the words after the comma, as the draftsperson had not used commas consistently throughout the policy.

NTI argued that its policy applied (ie. the exclusion wasn’t triggered) to defects causing injury where the vehicle is stationary, so long as it was in Queensland. However, outside Queensland, the policy did not apply where liability arises out of or is in any way connected with a defect (as was the case in the subject incident).

Decision of the NSWCA

The NSWCA disagreed with NTI on the basis that NTI’s construction could only be a sensible commercial construction if the Queensland CTP regime was fundamentally different in relation to a defective vehicle and it was not.

Further, it was held that the primary judge’s (and the NSWCA’s) interpretation avoided the “capricious result that stationary defects liability is excluded throughout Australia, except in Queensland where such liability is covered. It means that where liability arises out of or is in any way connected with a vehicle defect, then the exclusion is only available where the vehicle is being driven, and in the special case of Queensland, only if the defect causes loss of control of the vehicle”.

Lastly, it was held that even if the abovementioned interpretation was wrong, then the same decision would be reached by applying the contra proferentem rule.

In coming to its decision, the NSWCA (held by Leeming JA and Sackville AJA, with Macfarlan JA dissenting) carefully considered various principles before dismissing NTI’s appeal and deciding that the primary judge was correct to hold that the exclusion clause was not available to NTI.

Some of the principles adopted to resolve the ambiguity were:

  • In determining whether the terms of the policy are capable of more than one meaning, one must consider the text, context and purpose of the provision, including relevant surrounding circumstances
  • Punctuation will inform the legal meaning, but its significance is reduced if used inconsistently or haphazardly
  • The policy is to be read a whole such that a congruent operation is given to the various components
  • Regard may be had to the legislative context in which the policy was written
  • The language of the policy should be construed to give a business-like operation, to avoid a commercially absurd result, and
  • Consideration should be given to the conflicting considerations in construing the clause and the importance in the clause having work to perform.

Key Takeaway Points

The proper and consistent use of punctuation is critical, as this is one way in which the courts resolve structural ambiguities.

Policy draftspersons should take note of the abovementioned factors when drafting exclusion clauses in insurance contracts, as those considerations will be relevant in forming the legal meaning, proper construction and application of the relevant provision to potential claims.

Lastly, ensuring that policy wording is clear and unambiguous will avoid the need for the courts to interpret the clause as against the insurer/person who drafted it.